The joint statement of Prime Minister-designate Justin Trudeau and Ontario Premier Kathleen Wynne issued on October 27, 2015 indicates that the federal government and the Ontario government made progress on their mutual commitment to build greater retirement security for Ontarians and Canadians and the two governments will be active partners in the national discussion on pension enhancement, including the CPP and the Ontario Retirement Pension Plan (ORPP). An enhanced CPP will not happen overnight and will likely take years as such a change requires provincial endorsement. We expect that the Ontario Government will move ahead with the ORPP during the interim period. In this light, employers may want to continue to prepare for the launch of the ORPP.
Our Pension and Benefits Group issued an ORPP Update in September outlining key features of the ORPP. This ORPP Update focuses on various options available to employers in anticipation of the launch of the ORPP.
How Much Planning Time is Available?
If an employer had a registered workplace pension plan (or had begun the process of registering a workplace pension plan) as of August 11, 2015, it will have 4 years (up to December 31, 2019) for planning.
Other employers will have one to three years, depending on the size of its workforce.
- An employer with 500 or more employees: one year (up to December 31, 2016)
- An employer with 50-499 employees: two years (up to December 31, 2017)
- An employer with 50 or less employees: three years (up to December 31, 2018)
What are the Options for an Employer?
The availability of options depends on whether the employer has a "workplace pension plan", whether the "workplace pension plan" is "comparable" and whether the employer wants to contribute to the ORPP.
Below are some examples of available options. As a reminder, the ORPP applies to employees "employed" in Ontario and the rules for determining whether an individual is "employed" in Ontario are not yet known.
No Contributions to the ORPP
This option is available only to an employer which has a "comparable" workplace pension plan where participation is mandatory and no eligible waiting period is required.
If the employer currently does not have any pension plan or its pension plan is not "comparable", it needs to set up such a plan or amend its existing plan to make it "comparable". Alternatively, it may contribute to a "comparable" pooled registered pension plan (PRPP) (when available) or a "comparable" multi-employer pension plan (MEPP). The applicable comparability threshold tests for PRPPs and MEPPs are yet to be determined.
Contribute to the ORPP and No Comparable Workplace Pension Plan or Other Retirement Savings Plan
This can be a simple option for an employer which currently does not maintain or contribute to a workplace pension plan or any other types of retirement savings plans (such as a group RRSP, a TFSA or a DPSP).
However, if an employer currently maintains or contributes to a pension plan and/or a retirement savings plan, the employer will need to terminate the plan or cease to contribute to the plan in order to adopt this approach. This may not be a simple process.
Contribute to the ORPP and Contribute to a Workplace Pension Plan and/or Other Retirement Savings Plans
This option may not apparently be a preferred option for an employer in view of the cost and administrative complications involved in having obligations under more than one pension plan.
However, in some circumstances (e.g. the employer's pension plan is not obviously “comparable” to the ORPP or the employer has other retirement savings plans) the employer may want to consider keeping its plans but reducing its contributions to such plans to offset its required contributions to the ORPP.
What are the Relevant Considerations in Assessing the Options?
There are legal, business, human resources and financial considerations in assessing the options. The process can be complicated and advice from lawyers and actuaries will be helpful in the assessment.
Below is an illustrative, but not exhaustive, list of relevant considerations:
- What are the cost and other financial implications (including funding and administrative costs)?
- Are there employees in other provinces? Does the option result in different benefits to employees depending on their location? Any concerns with this arrangement?
- Does the employer contribute to retirement savings plans and/or workplace pension plan(s) which are not "comparable"? Will they be kept?
- Does the option involve amendments to, or termination of, or withdrawal of participation from, an existing plan? What are the legal and other hurdles for such course of action? Provisions in collective agreements, risk of constructive dismissal claims, restrictions in plan documents, pension legislative requirements and federal tax implications will all need to be canvassed.
- What is the appropriate time-frame and action plan?